Ah, the endless complaints. Every market swing that doesn't align with someone's portfolio choices seems to trigger the same tired refrain: "The market isn't rational anymore!"
I've heard this particular whine—and let's be honest, that's what it is—for nearly as long as I've been covering financial markets. It's the investment world's equivalent of yelling at clouds.
Look, the stock market has never been the neat mathematical equation many retail investors seem to expect. It's messier than that. Much messier.
During a particularly volatile week back in 2018, I remember sitting across from a hedge fund manager who'd just watched his carefully constructed thesis get absolutely demolished by market movements that "made no sense." He wasn't the first, and certainly wouldn't be the last.
The market, as one trader told me over whiskeys years ago, "is a psychological experiment with real money at stake." (He was paraphrasing something Buffett-adjacent, but the bourbon made the delivery more memorable.)
What most complainers actually mean is that the market isn't behaving according to their specific model of how it should work. That's not irrationality—that's an incomplete model.
Remember Tesla's rise? When its valuation exceeded all other automakers combined despite a fraction of their sales volume, the "irrational market" crowd nearly lost their minds. But was it actually irrational, or were millions of participants with skin in the game seeing something beyond traditional metrics?
The market doesn't just discount future cash flows. It's pricing in narratives, disruption potential, liquidity conditions, positioning... and yes, emotions too. All perfectly rational inputs from the market's perspective, even if your spreadsheet can't capture them.
There's an attribution error happening: confusing "I don't understand this" with "this makes no sense." Professionals rarely sit around complaining about irrationality—they're too busy adjusting their models to better understand what's actually happening.
This isn't new! In the 1700s, Sir Isaac Newton—literal genius—lost a fortune in the South Sea Bubble and famously remarked, "I can calculate the motion of heavenly bodies, but not the madness of people."
The most successful investors I've interviewed over the years understand that markets reflect a complex blend of fundamentals, liquidity, sentiment, and positioning. They adapt rather than whine.
Does this mean bubbles don't form or prices always make sense? Of course not. But dismissing movements you don't understand as "irrational" is just intellectual laziness.
As Howard Marks (whose investor letters I've devoured for years) puts it: "The market's not wrong—it's just answering a different question than the one you're asking."
So next time you feel that urge to complain about market irrationality, consider this: perhaps it's your understanding that's incomplete, not the market that's broken.
The market doesn't owe anyone an explanation. Your job is to understand it, not the other way around.
